Prime minister to boost spending due to "abundant challenges and threats", despite previously saying he would make cuts.

The Arab spring has left Israel with a strategic map that has been radically redrawn in the past 12 months [AFP]

Israel will boost defence spending by about six per cent this year in the face of deepening regional instability, Prime Minister Benjamin Netanyahu has said, after saying last year that he would make cuts to the military to finance social reforms.

"We are going to add three billion shekels ($700m) to the defence budget," Netanyahu told a news conference on Sunday.

Netanyahu had in October supported the recommendations of a report he commissioned, by economist Manuel Trajtenberg, which were intended to address rising frustrations about the cost of living and income disparity in Israel that triggered mass protests last year.

One of the Trajtenberg report's proposals was to cut a defence budget that amounts to around $14bn, of which $3bn comes in annual US military aid, to finance a series of social initiatives without increasing the deficit.

"I have reflected on this question, but in view of what has happened in the region, I have reached the conclusion that cutting the defence budget would be a mistake, even a big mistake," Netanyahu told a weekly cabinet meeting.

Israel faces a strategic map that has been radically redrawn in the past 12 months.

It looks likely to lose regional alliances with Turkey and Egypt, faces a possible entente between the two main Palestinian factions, an ongoing uprising in neighbouring Syria and growing fears over Iran's nuclear programme.

'Shield of the country'

"Any sensible person can see what is happening around us ... All these changes have strategic implications for the national security of the state of Israel, for our ability to face the new challenges and instability," Netanyahu said.

The Israeli army "is the shield of the country, which is why we must increase its means," he added.

The prime minister said that in return for the spending increase, the defence ministry would have to respect the principle of transparency, which would allow the government to monitor the management of the budget.

"In the past, we discovered things late, whereas now we will become aware of them in real time," he said.

Israel's cabinet in October approved the recommended economic reforms outlined by the 267-page Trajtenberg report, which covered housing, competitiveness, social services, education and taxation.

Despite their apparent victory, defence officials were circumspect about the changes, saying they might only receive extra funding for this year and that they expected cuts to be imposed later.

"The defence budget has been sharply and routinely decreased over the years," Defence Minister Ehud Barak said in a statement, noting that in 1986 the defence budget was 17 per cent of GDP.

The 2011 defence budget was about six per cent of GDP.

"Cuts will bring the IDF (Israel Defence Force) to a red line in everything to do, with capabilities, training and readiness to face the challenges before us," Barak said.

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